About Me

Saturday, December 28, 2013

1. The P4.15 per kilowatt-hour (kwh) electricity rate
increase is short-term. It should have applied for only a month (if the
increase had not been staggered) while the Malampaya natural gas platform was
under maintenance. After that, the original lower rates, other things being
equal, should return. Thus, contrary to public opinion, the rate hike is not
long term.

2. The rate increase stems mainly from the generation
charge, partly from the transmission charge, but nothing from the distribution
charge. As distributor, Meralco is on the last stage of the electricity supply
chain and is the collecting agent for all players (including the taxes that the
government levies), and so naturally receives the brunt of public anger.

Compare the December rates above with the November rates
below. Supply charge remained at P0.6043/kwh or P19.88/customer/month, while
metering charge also stayed at P0.4066/kwh or P5.00/customer/month.

The generation charge from November to December this year
increased by P2.00/kwh, transmission charge by P0.0372, and system loss charge
by P0.1950. As for the distribution charge, no increase.

Last October, the per kwh charges were as follows:
generation charge, P4.6832; transmission charge, P0.8652; and system loss
charge, P0.5050 -- all lower than the November rates. But the September rates
were slightly higher than those of October, as part of the normal fluctuation
in prices per month.

3. Lack or absence of competition is
bad. Electricity distribution in the Philippines is always a monopoly,
given to a specific entity through a congressional franchise. The Meralco
monopoly is an example. In addition, there is a Constitutional restriction, as
foreign equity is not allowed.

The big power plants from which Meralco gets its
electricity are Sta. Rita and San Lorenzo of Lopez-owned First Gas, and the
Ilijan plant of SPPC. The three run on natural gas. The other big source of
electricity comprises coal power plants. Comparing the per kwh cost of natural
gas and coal on the one hand, and those from WESM on the other, the price
differential is big, up to 10x costlier in November.

The same story can be seen in Table 3: electricity rates
from WESM are a lot higher. The power plants that are on maintenance shutdown
are the following:

·1,000-megawatt Sta. Rita plant, First Gas;

·500-MW San Lorenzo power plant, FIrst Gas;

·1,200-MW Ilijan plant of South Premier Power
Corp;

·730-MW Pagbilao power plant of Team Energy Corp;

·600-MW Masinloc power plant of AES Philippines;
and

·600-MW Calaca power plant of DMCI Holdings Inc.

The first three plants run on natural gas from Malampaya
for a combined 2,700 MW; the next three are coal-fired plants for a total
of 1,930 MW. Overall, 4,630 MW of fossil fuel from six power plants are giving
us cheaper and stable electricity. When they are down, whether on maintenance
or by accident, we suffer from high electricity bills. Of the P4.15/kwh rate
increase, P3.44 goes to additional generation charge alone as Meralco is forced
to get power through WESM, where other power suppliers are using diesel,
geothermal, hydro and other renewables.

5. The maintenance shutdown of Malampaya -- done every
two years on average -- has been scheduled and announced around middle of this
year. There was no “surprise rate hike” since this was announced several months
ago. If natural gas is cheap, any shift to other power source will immediately
result in a price hike. But such hike should be temporary, say for only a
month, the usual length of maintenance shutdown for big facilities like
Malampaya.

6. Cheap and stable energy from fossil fuels like natural
gas and coal is desired by the public, as evidenced by their anger at higher
energy prices from other power plants not running on natural gas and coal. The
public however demonizes fossil fuel and emotionally endorses renewables like
solar and wind, without realizing that these are expensive and unstable power
sources.

How cheap is natural gas compared to other power sources?
In the US, here are the estimated levelized costs of new generation sources,
plants entering service in 2018, in $ per megawatt-hour.

Solar thermal and offshore wind -- similar to the poster
photos of those wind farms in Bangui, Ilocos Norte -- will still be nearly 4x
more expensive than natural gas by 2018 in the US. At present, they should be
5X or more expensive than natural gas.

7. The P4.15/kwh rate hike that angers the public is not
even one-half of the feed in tariff (FIT) or additional charge to be
passed on to consumers, by the Renewable Energy Act of 2008 (RA 9513) for solar
at P9.68/kwH, and wind at P8.53/kwH. Lower FIT are given to biomass, P6.63/kwH,
and hydro, run of river, P5.90/kwH.

The public is not angry at this. They have been
hoodwinked by certain sectors like Greenpeace, World Wildlife Fund (WWF), the
UN and Al Gore to think that we need more expensive and unstable electricity
sources to “save the planet.”

8. The Electric Power Industry Reform Act of 2001 (EPIRA)
or RA 9136 has removed state-owned National Power Corp's (Napocor) monopoly
over power generation, allowing private players to compete. Many people are
angry at this law because it allowed three big players -- Aboitiz, San Miguel
and the Lopez Group -- to dominate or control 65 percent of installed
generation capacity in Luzon.

But 65 percent control by three players is better than
almost 100 percent control by just one corporation back then (i.e., Napocor). A
friend of mine who works at SN Power (Norway) said Napocor power generation
from Magat, Pantabangan and others dams was as low as 30 percent of their
installed capacity. When SN Power-Aboitiz came and assumed the hydro plant, it
raised the utilization rate up to 100 percent. This is one more proof that
private players in a competitive environment do better than a government
monopoly like Napocor. Thanks to the EPIRA.

9. We should have more natural gas and coal power plants
as global price of coal is declining. The US, many European and emerging
markets are slowly shifting to shale gas, another fossil fuel that is cheap and
stable, and hence will fuel more industrialization in the developed world.

Shale gas will bail out those economies from the
wastefulness and profligacy of their governments.

10. Overall, the subject has been sensationalized and
politicized by certain sectors that dislike market competition, electricity
privatization, and continued Meralco monopolization.

But one good thing that came out of the whole controversy
is that people -- no matter if they're tree-huggers or harbor "save the
planet" sentiments -- are actually unwilling to pay more for electricity
whenever possible. If people love wind and solar, then they should just put up
those solar panels on their rooftops, cool. They walk the talk, no issue. But
it's a different thing when they say they want "clean, non-polluting,
affordable solar/wind" by forcing the rest of us to subsidize their
monthly electricity bills.